26 September 2019 | Analysis of KDP 302/2019 which provides for a grant of subsidy for VAT imposed upon the purchase of undeveloped buildable land. On 20 September 2019 the Cyprus House of Representatives gave the green light to persons who have purchased or will be purchasing undeveloped buildable land with the intention of constructing their main and permanent place of residence in the Republic, to claim state subsidy with regards to the VAT imposed on such purchases. The relevant notification (KDP 302/2019) was officially included in issue No 5183 of the Cyprus Government Gazette which was released on 20th September 2019. It should be further noted that, in addition to KDP 302/2019, the Tax Authorities also released a relevant explanatory notification on this particular issue.
Conditions applicable for claiming the subsidy
1. The undeveloped buildable land must have been purchased since 2nd January 2018 and be subject to VAT as per the relevant provisions of paragraph (1) (b)(iii) of Schedule 8).
2. The land* purchased is destined for the construction of the applicant’s main and permanent place of residence in the Republic.
*Although not clearly mentioned either in KDP 302/2019 or in its accompanying explanatory notification released by the Tax Authorities, it appears that there are no restrictions with respect to the size of the land for which the subsidy is applied for.
3. The subsidy for the land is only granted if the residential building to be constructed is also eligible for the reduced VAT rate of 5% (as per the relevant provisions of Part C of Schedule 5 of the Cyprus VAT Act).
4. The submission to the Tax Authorities of the necessary application together with any supporting documentation must be made within a set timeframe. Nevertheless, neither KDP 302/2019 nor its accompanying explanatory notification released by the Tax Authorities impose any time restrictions with respect to the time between the purchase and construction of the land.
It is noted that the subsidy only applies for the purchase of land whilst construction services continue to be taxed under the reduced VAT rate of 5% provided the statutory conditions are met.
Persons entitled to the subsidy
Every person who purchases undeveloped buildable land which is subject to 19% VAT and constructs a building which is to be used as his main and permanent place of residence while staying in the Republic.
Amount and calculation of the subsidy
Taxpayers entitled to the subsidy shall receive a cash refund equal to 14% of the VAT amount corresponding to up to 200 square meters of building area charged on the purchase price of the undeveloped buildable land.
An applicant purchases an undeveloped buildable land for a total amount of €300.000 plus 19% VAT (€57.000). The applicant constructed a building of 250 square meters of buildable area.
Since the buildable area of the residence exceeds the fixed statutory threshold of 200sqm, the applicant is entitled to claim only part of the subsidy in relation to the VAT amount paid upon the purchase of the land. i.e.
- Allowable percentage: 80% (allowable buildable area/total buildable area (200/250)
- Subsidy to be granted: €33.600 (€300.000 Χ 80% X 14%)
- VAT amount non-refundable: €11.400 (€300.000 X 20% X 19%)
In order for the subsidy to be granted, applicants must submit to the Tax Authorities the following documents:
Procedure for requesting the subsidy
1. A certified declaration. The declaration must be submitted to the Tax Department’s District Offices either on the same date of submitting an application for the imposition of the reduced VAT rate of 5% on the purchase or construction of a residence in the Republic or at a later point of time. (A sample of the declaration is attached).
2. Original purchase invoice issued to the applicant by the seller of the land*.
3. Sale purchase agreement in relation to the undeveloped buildable land duly stamped and sealed by the Stamp Duty Commissioner*.
4. Any other supporting documentation proving that the residence with which the subsidy relates is being used by the applicant as his main and permanent place of residence in the Republic. (I.e. copies of utility bills referring to telecommunication services received, electricity, water supply, etc)*.
* The documents mentioned under points 2 - 4 here above must be submitted to the Tax Authorities within a period of 6 months from the date the applicant first commenced using the property.
How can KPMG assist?
Should you like to further discuss the content and potential impact of the Circular to your business, please contact one of our trusted advisors from the Indirect Tax Department at KPMG Cyprus.
KPMG’s Indirect Tax team provides advice and assistance at the Cyprus and international level. We structure our effort to dovetail with your business issues and strategy. Our focus is on supplying value adding and pragmatic advice rather than just a list of recommendations.
Our tax professionals are able to review your company’s current tax position and provide relevant advice and planning on a range of indirect taxes, including VAT, customs duties and excise taxes (such as tax audits, reorganizations and acquisitions, etc.). Furthermore, we can help your company with its administrative obligations and contacts with administrative bodies.
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